Being Greedy When Others Are Fearful Is Hard

You have likely heard the saying “Be greedy when others are fearful, and fearful when others are greedy.” It sounds simple in theory – be a buyer when stocks are cheap and a seller when they are expensive.

But why is that so hard?  

Morgan Housel of the Collaborative Fund wrote “If I, today, imagine how I’d respond to stocks falling 30%, I picture a world where everything is like it is in [now] except stock valuations, which are 30% cheaper.” However, that is not reality.

He goes on “Downturns don’t happen in isolation. The reason stocks might fall 30% is because big groups of people, companies, and politicians screwed something up, and their screw ups might sap my confidence in our ability to recover. So my investment priorities might shift from growth to preservation. It’s difficult to contextualize this mental shift when the economy is booming. That’s why more people say they’ll be greedy when others are fearful than actually do it.” 

Maybe you originally took an evidence-based approach to investing, accepting that bear markets are an inevitable experience, and trusting that over time, the economy recovers. But that view is easy to have about the past – we know how things turned out and we know that things got better. It’s completely different to have those views about the future when we’re experiencing it in real-time.  As these events unfold, they might completely change our view of the world.

Consider these headlines from past bear markets  

2000 Tech Boom – “Unapologetic Bear Believes Market Is Still Overvalued”1 

2008 Financial Crisis – “Soros sees no bottom for world financial collapse”2 

2020 Covid Crisis – “How Bad Could Markets Get? History Says Much Worse”3 

It is hard for anyone to read these articles from well-established publications and not have some doubt about the future. However, all of these articles were written within 2 weeks of the bottom of the market and would have actually been a great time to invest. I am admittedly biased here, but this is one of the reasons I am an advocate for working with someone to keep you accountable to a written investment policy that directs you to make sound investment decisions on autopilot when you feel like abandoning it all. 

 Thank you for reading, 

 Alex 

This blog post is not advice. Please read disclaimers.

1 - Wall Street Journal. Unapologetic Bear Believes Market Is Still Overvalued. Wall Street Journal, 30 Sept. 2002. 

2 - “Soros Sees No Bottom for World Financial ‘Collapse.’” Reuters, Thomson Reuters, 21 Feb. 2009, www.reuters.com/article/us-financial-soros/soros-sees-no-bottom-for-world-financial-collapse-idUSTRE51K0A920090221. 

3 - Mackintosh, James. “How Bad Could Markets Get? History Says Much Worse.” The Wall Street Journal, Dow Jones & Company, 17 Mar. 2020, www.wsj.com/articles/how-bad-could-markets-get-history-says-much-worse-11584442802.